Order Code RS20410
Updated July 17, 2000
CRS Report for Congress
Received through the CRS Web
Joint Negotiation by Health-Care Professionals:
H.R. 1304, “Quality Health-Care Coalition Act of
American Law Division
H.R. 1304, “Quality Health-Care Coalition Act of 1999,” amended and passed by
the House on June 30, 276-136, would enable health-care professionals to negotiate
jointly with non-federally affiliated health plans concerning “the terms of any contract
under which the professionals provide health care items or services for which benefits are
provided under such plan” (except that discussions about requiring abortion coverage are
exempt from the negotiation exemption), thus altering existing antitrust law so that joint
negotiation by health-care entities that, but for their joint activity, would normally be
competitors, would no longer be considered unlawful. A sense of Congress amendment
states that medical decisions should be made by health care professionals and patients.
This report will set out, briefly: the present antitrust law and some relevant exemptions
from it; some pertinent parts of the “Statements of Antitrust Enforcement Policy in
Health Care,”1 and the major provisions of H.R. 1304. It will be updated to reflect
changes in the legislative status of H.R. 1304.
The relevant provision of current antitrust law is section 1 of the Sherman Act (15
U.S.C. § 1), which prohibits contracts or conspiracies in restraint of trade. When joint
activity concerns pricing or output decisions it is not only prohibited, but generally
considered per se violative of the antitrust laws (i.e., automatic – requiring no detailed
analysis of the circumstances surrounding, and admitting of no justification for, the
challenged activity).2 Section 1 is the provision which normally would be applicable to
Issued jointly by the Department of Justice and the Federal Trade Commission (FTC),
August 28, 1996 (hereinafter, Health Care Guidelines, or Guidelines).
Generally, only those restraints deemed unreasonable have been prohibited (Standard Oil
Co. of New Jersey v. United States, 221 U.S. 1 (1911); Board of Trade of the City of Chicago v.
United States, 246 U.S. 231, 238 (1918): “... the legality of an agreement cannot be determined by
so simple a test as whether it restrains competition. Every agreement concerning trade, every
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joint activities – especially those pertaining to price/fees – of entities engaged in
commerce. With the exception noted below at page 3, physicians are not exempt from the
prohibitions of section 1 – whether they agree on fees among themselves or, as in the case
under consideration in H.R. 1304, conclude an agreement in concerted negotiations with
a buyer of group members’ services (“health care professional” joint negotiation with a
“health plan.”).3 Joint action deemed “noncommercial” is not generally considered
violative of the antitrust laws;4 the FTC, for example, has never prosecuted a case in which
physicians have negotiated collectively with a health plan on an issue directly involving
patient care.5 Nevertheless, there is also some indication that only noncommercial entities
which take concerted action to further some social welfare objective are completely
protected, even when they are driven by objective(s) which may be highly partisan.6
regulation of trade, restrains. ... The true test of legality is whether the restraint imposed is such
as merely regulates and perhaps thereby promotes competition or whether it is such as may
suppress or even destroy competition.”). On the other hand, “ ... there are certain agreements or
practices which because of their pernicious effect on competition and lack of any redeeming virtue
are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to
the precise harm they have caused or the business excuse for their use [i.e.,. per se unreasonable].”
Northern Pacific Railway Co. v. U.S., 356 U.S. 1, 4 (1958).
See e.g., Goldfarb v. Virginia State Bar, 421 U.S. 773, 787. Activity that would normally
be considered per se unlawful if carried out jointly by individual competitors – if carried out by an
entity that is sufficiently integrated to have formed a new entity with an identity apart from its
individual components – is, however, generally considered to be that of a true “joint venture”; and
is treated not as per se violative of the antitrust laws, but analyzed under the antitrust Rule of
Reason, which balances the anticompetitive results of a transaction against any procompetitive
effect that might be produced by the activity (see discussion infra re Physician Network Joint
Ventures under the Health Care Guidelines).
Klors, Inc. v. Broadway-Hale Stores, Inc. 359 U.S. 207, 213 n. 7(1959) (Sherman Act “is
aimed primarily at combinations having commercial objectives ....”); see also State of Missouri v.
NOW, 620 F.2d 1301 (8th Cir. 1980), cert. denied, 449 U.S. 842 (1980) (no relief to governments
challenging NOW’s convention boycott of states that had not ratified the Equal Rights
Amendment); NOW v. Scheidler, 968 F.2d 612, 617-23 (7th Cir. 1992), rev’d on other grounds,
510 U.S. 249 (1994) (antitrust claim charging conspiracy by antiabortion group to shut down
abortion clinics dismissed).
Robert Pitofsky, Chairman of the FTC, testifying before the House Judiciary Committee at
June 22, 1999 hearings on H.R. 1304. Presumably, Pitofsky was referring to physician negotiation
directly about quality-of-care issues; the Agency has, however, prosecuted indirect joint action
designed to achieve some likely permissible result (see, e.g., note 6).
In FTC v. Superior Court Trial Lawyers Ass’n., 493 U.S. 411 (1990), the FTC challenged
a work-stoppage by court-appointed attorneys, allegedly instituted on behalf of the criminal
defendants they served. Although the Court was sympathetic to the attorneys’ arguments that the
level of service to indigent defendants was significantly and adversely affected by the limited
resources available to the attorneys; and that the concerted action to get increased compensation
was but a means to secure higher quality service, it said: “[Although] ... the quality of
representation may improve when rates are increased, ... that fact is [not] an acceptable justification
for an otherwise unlawful restraint of trade. ... No matter how altruistic the motives of respondents
..., it is undisputed that their immediate objective was to increase the price that they would be paid
for their services” 493 U.S. at 427. The arrangements made lawful in H.R. 1304 were justified as
Antitrust immunity (exemption(s) from the operation of the antitrust laws) has
specifically been provided in such areas as labor relations, certain insurance practices, and
in instances in which private actors are “third-party beneficiaries” of the states’ so-called
“state action” immunity; a brief discussion of the first two areas follows.
The antitrust statutory exemption declares that the “labor of a human being is not a
commodity or article of commerce” (15 U.S.C. § 17); it specifically authorizes the
formation and existence of labor unions, and recognizes the “legitimate objects” of
members’ labor-related activities. Pursuant to labor law, employees (here, doctors who
are employed by hospitals or health plans) are granted collective bargaining rights by the
National Labor Relations Act;7 and several sections of the Norris-Laguardia Act (29
U.S.C. §§ 101-115 ), which expressly permit parties to a “labor dispute” to act “singly or
in concert” (29 U.S.C. § 104); or prohibit federal courts from issuing injunctions in a
“labor dispute” on the ground that the participants are “engaged in an unlawful
combination or conspiracy” (29 U.S.C. § 105). The judicially created labor-antitrust
exemption, which holds that Congress’ desire to foster collective bargaining is best
furthered by permitting employees who wish to jointly negotiate the terms of their
employment to do so without fear of violating the antitrust laws, requires the following:
(1) the practice(s) being negotiated must inherently constitute a mandatory subject of
collective bargaining (i.e., be bona fide terms or conditions of employment); (2) the
practice(s) being negotiated should be no more restrictive than is absolutely necessary to
realize the goal(s) it (they) purport(s) to achieve; (3) the practice(s) must be embodied in
a valid, genuinely negotiated collective bargaining agreement.8
Insurance (McCarran-Ferguson Act)9
15 U.S. § 1012(b) mandates not only that the “business of insurance” shall be
regulated at the State level, but also that “No Act of Congress shall be construed to
invalidate, impair, or supercede any law enacted by any State for the purpose of regulating
the business of insurance ... unless such Act specifically relates to the business of
insurance.” Federal antitrust law does not specifically relate to the business of insurance,
necessary to “enhance the quality of patient care” in the bill as introduced; the legislation continues
to be titled, “Quality Health-Care Coalition Act.”
Specifically, 29 U.S.C. § 157.
The recent decision of the House of Delegates of the American Medical Association (AMA)
to form a collective bargaining unit would have little impact on the current debate concerning the
right of physicians to bargain collectively, and would alter the current status of bargaining unit
physician-employees only in that they would, when selecting a bargaining unit representative (as
allowed by 29 U.S.C. § 157), be able to choose the AMA-sponsored union: “fewer than 20% (or
108,000) of physicians are in employed, nonsupervisory positions that would make them currently
eligible to bargain collectively.” 77 ANTITRUST & TRADE REGULATION 34 (July 8, 1999).
15 U.S.C. §§ 1011-1015; for a more thorough treatment of the background and history of
McCarran-Ferguson, see Cohen, “The McCarran-Ferguson Act’s Exemption of the Business of
Insurance From Federal Antitrust Law,” CRS Report 90-212, April 24, 1990.
and neither the term nor its scope were defined in McCarran-Ferguson; accordingly, some
observers held/hold federal antitrust law inapplicable to any action undertaken by any
member of the insurance industry, a position seemingly endorsed in the “Finding” in H.R.
1304, as introduced, that “[t]he McCarran-Ferguson Act has created an enhanced
opportunity for market power of insurance companies in health care and has given such
companies significant leverage over health care providers and patients” reflected that
confusion. In fact, as was indicated in testimony at the June 1999 hearings, case law
seems to indicate that the Act probably does not either permit or authorize insurance
companies to merge or to otherwise acquire or maintain market power,10 although the
McCarran-Ferguson protection/immunity available to the “business of insurance” does
permit some joint action by insurance companies (e.g., the sharing of actuarial data) that
might ultimately facilitate the acquisition of market power.
Health Care Guidelines11
“Physician Network Joint Ventures” (physician-controlled ventures in which the
networks’ physician participants collectively agree on prices or price-related terms and
jointly market their services) are addressed in Guideline number 8, which notes that
“[t]ypically, such networks [e.g., IPAs or PPOs]12 contract with [health] plans to provide
physician services to plan subscribers at predetermined prices, and the physician
participants in the network agree to controls aimed at containing costs and assuring the
appropriate and efficient provision of high quality physician services.”13 The “antitrust
In 1969, the Supreme Court decided that the “business of insurance” concerned the
“insurance relationship.” In Securities and Exchange Commission v. National Securities, Inc., the
Court allowed the application of a state statute aimed at protecting the stockholders of insurance
companies during a merger (393 U.S. 453, 460 (1969)). Ten years later, in Group Life & Health
Insurance Co. v. Royal Drug Co., it pointedly noted that McCarran-Ferguson exempted “the
‘business of insurance,’ not the ‘business of insurors’” (440 U.S. 205, 211 (1979)). Most recently,
the Court relied on National Securities to allow policyholders to maintain a RICO (Racketeer
Influenced and Corrupt Organizations Act, 18 U.S.C. § § 1961-1865) action against insurance
companies that allegedly gained discounts for hospital services but did not pass them on to
insureds; it found that the action would not violate the proscriptions of McCarran-Ferguson: “...
RICO advances the State’s interest in combating insurance fraud, and does not frustrate any
articulated Nevada policy [concerning insurance regulation] ....” (Humana Inc. v. Forsyth, 119
S.Ct. 710, 719 (1999)).
HEALTH CARE GUIDELINES reprinted at 71 ANTITRUST & TRADE REGULATION REPORT
Special Supplement (August 29, 1996). The Guidelines are described and summarized in Update
on Provider-sponsored Organization and the Antitrust Laws, Appendix to the 1997 Annual
Report to Congress prepared by the Physician Payment Review Commission.
Individual practice associations; preferred provider organizations.
71 ATRR Special Supplement at S-15. The joint marketing of their services to health care
plans by various kinds of physician joint network associations, and whether such action should be
considered as insurance activity and licensed as such, is addressed in Hirshfeld, Assuring The
Solvency of Provider-Sponsored Organizations [PSOs], 15 HEALTH AFFAIRS 28 (Fall 1996); and,
with respect to organizations which are Medicare providers, Polzer, Medicare PSOs, NATIONAL
HEALTH POLICY FORUM Issue Brief No. 72.
safety zone” for physician joint networks allows participation in “exclusive” networks14
by 20 percent or less of the physicians “in each physician specialty with active hospital
staff privileges in the relevant geographic market,”15 and 30 percent or less for bona fide
“non-exclusive” networks, and requires that “participants in a physician network joint
venture must share substantial financial risk in providing all the services that are jointly
prices through the network.”16 The Guideline emphasizes, however, that “merely because
a physician network joint venture does not come within a safety zone in no way indicates
that it is unlawful under the antitrust laws.”17
The FTC’s recent complaint against Mesa County IPA18 illustrates the circumstances
that will generally result in antitrust enforcement action. Paragraph Six of the amended
complaint states that the IPA “was formed ... to promote the collective economic interests
of Mesa County physicians. ...[it] has acted to restrain competition by, among other
things, facilitating, entering into, and implementing agreements among its members,
express or implied, to fix price and other competitively significant terms of dealing with
payers, or by collectively refusing to deal with payers. Paragraph Twelve charges that the
“physician members of ... Mesa County IPA have not integrated their practices to create
efficiencies sufficient to justify their acts and practices....” Part II of the consent order
mandates that the IPA, “directly or indirectly, or through any corporate or other device,
in connection with the provision of physician services in or affecting commerce, ... cease
and desist from”:
A. Entering into, adhering to, participating in, maintaining, organizing, implementing,
enforcing, or otherwise facilitating any combination, conspiracy, agreement, or
1. Negotiate on behalf of any participating physicians with any payer or provider;
.... (emphasis added)
Those in which physician participants may not generally practice individually, or affiliate
with other networks or health plans, i.e.,. may not either continue their individual practices or
affiliate with other networks or plans.
I.e., the geographic market in which the group operates and from which it can reasonably
expect its patients to come.
71 ATRR Special Supplement at S-16. Risk sharing is used as an indicator of sufficient
integration in the network to allow for treatment as a single entity (joint venture) rather than as a
collection of competitors, and eligible for Rule of Reason versus per se antitrust analysis;
acceptable risk-sharing arrangements may include capitation, fee withholds or other financial
incentives (e.g., performance “targets”), and payment agreements under which participants agree
to payment as a predetermined percentage of a plan’s premiums or revenue. “In accord with
general antitrust principles, physician network joint ventures will be analyzed under the rule of
reason, and will not be viewed as per se illegal, if the physicians’ integration through the network
is likely to produce significant efficiencies that benefit consumers, and any price agreements (or
other agreements that would otherwise be per se illegal) by the network physicians are reasonably
necessary to realize those efficiencies.” Id. at S-17- S-18.
Id. at S-15.
In re Mesa County Physicians Independent Practice Association, Inc., Docket No. 9284,
original complaint issued May 12, 1997; amended complaint and proposed consent order issued
May 4, 1999, released May 20, 1999.
H.R. 1304, “Quality Health-Care Coalition Act of 1999"
As noted above, employees may currently negotiate jointly with their employers
pursuant to either the non-statutory “labor-antitrust” exemption or the authorization
contained in various provisions of 29 U.S.C.; H.R. 1304 would extend that authorization
to non-employee, independent physicians and other “health-care professionals.”19 It would
create the legal fiction that, for purposes of joint negotiation with non-federally affiliated
health plans,20 they are “employees” “entitled to the same treatment under the antitrust
laws” as are “bargaining units which are recognized under the National Labor Relations
Act” (section 2(a)).
H.R. 1304 differs from the “bargaining unit” authorization in 29 U.S.C. § 157 in that
it expressly does “not confer any right to participate in any collective cessation of service
to patients”(section 2(c)(1)); the labor provision expressly allows “other concerted
activities.” Further, the bill does not, as does the nonstatutory labor-antitrust exemption,
distinguish between mandatory and permissive subjects of bargaining. Any action taken
“in good faith reliance” on the above authorization would not be subject to civil or
criminal antitrust “sanctions,” or to damages “beyond actual damages incurred” (section
The bill, which does not yet have any companion or similar legislation in the Senate,
is as notable for what it does not contain as for the collective negotiation it sanctions.
There is no limit on the subjects of that negotiation, so that fees could be negotiated even
with health plans that realistically exercise only minimal market power (a proposed
amendment would have denied the negotiation exemption to any discussion of fees);
recently enacted, similar, but more limited, legislation in Texas,21 on the other hand, is
specifically limited to “physicians,” and requires that before fees may be negotiated, the
State Attorney General must find that a health plan enjoys “substantial market power.”
Nor is there any requirement that a negotiating unit either (1) be geographically or
numerically circumscribed, or (2) not contain more than a single type of health care
professional: multi-state, or multi-discipline, health care professional negotiating units
consisting of e.g., all of the physicians, RNs, LPNs, physical therapists, etc.,in any size
delineated area, are theoretically possible).
The authority conferred by H.R. 1304 is limited to 3 years from the date of
enactment, after which time the General Accounting Office is to study the bill’s “impact,”
and make recommendations concerning its continuation (sections 2(d), 2(i)).
Defined broadly to include “an[y] individual who provides health care items or services,
treatment, assistance with activities of daily living, or medications to patients and who, to the
extent required by State or Federal law, possesses specialized training [not necessarily a degree
or a license] that confers expertise in the provision of [those things]” (section 2(j)(3)) (Emphasis
“Health plan” is defined as “a group health plan or a health insurance issuer that is offering
health insurance coverage” (section 2(j)(2)(A)).
Vernon’s Annotated Texas Stats. Insurance Code Arts. 29.01- 29.14; the statute sunsets
in September 2003 (Art. 29.14).
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